Puerto Rico oversight board sues governor, fiscal agency
To invalidate law exempting municipalities from paying pensions; and to compel compliance with Promesa law
SAN JUAN – The Financial Oversight and Management Board for Puerto Rico has sued Gov. Ricardo Rosselló, and the Puerto Rico Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym) in federal court to prevent the island’s government from enforcing Act 29 and compel it to comply with the Puerto Rico Oversight, Management and Economic Stability Act of 2016 (Promesa).
“This law was duly enacted and then certified as compliant by the pertinent fiscal entities under Section 204 of PROMESA. Our legal team will be examining said legal action brought by the Fiscal Oversight Board and we will be answering the same in the pertinent court,” Christian Sobrino, Aafaf’s director and the governor’s representative to the board, said in a statement following the latter’s announcement.
The fiscal board said in its announcing release Thursday that it had advised the government against passing the measure that became Act 29. In a May 17 letter, the board told the governor, Senate President Thomas Rivera Schatz and House Speaker Carlos Méndez that the potential fiscal impact of the legislation would be of about $311 million for fiscal year 2020, and $1.7 billion through fiscal year 2024.
Based on those estimates, the board concluded the bill was not compliant with the fiscal plan it certified for the government, which “includes municipalities’ full payment of their obligations to the Puerto Rico Health Insurance Administration [ASES by its Spanish acronym] and PayGo,” or pay-as-you-go scheme to fund pensions.
Act 29, the board argues, “will alter, and substantially eliminate, the obligation of Puerto Rico’s municipalities to reimburse the Commonwealth for hundreds of millions of dollars in pension costs for their own retirees and will transfer those costs permanently to the Commonwealth.”
The fiscal panel said Rosselló “failed to comply with Section 204 and Section 207 in enacting Law 29, and together with the Governor’s repeated non-compliance with PROMESA, has impaired and defeated the purposes” of the federal law that created the board.
“Law 29 will undermine the Government’s ability to pay pensions to all retirees whenever Puerto Rico’s government faces fiscal distress,” board Chairman José Carrión said. “That is why all employers, including municipalities, have a responsibility to pay their share of PayGo. Exempting municipalities and putting that burden on the Commonwealth sets a terrible precedent that other employers may try to use in the future. Current and future retirees must be able to rely on their pensions being able to be paid, which requires all employers to pay their share of PayGo.”
Carrión said the governor has “refused” to submit certifications and cost estimates for more than 100 laws and joint resolutions; “refused to submit budget to actual reports for numerous entities, and has repeatedly signed Joint Resolutions that spend tens of millions of dollars in unbudgeted funds” without the fiscal panel’s approval.
“The Government’s non-compliance with PROMESA is not limited to Law 29. The Governor has also signed two dozen Joint Resolutions appropriating funds for expenditures not included in either the Oversight Board-certified budgets for Fiscal Year 2019 or Fiscal Year 2020. The Governor has done so without seeking an analysis and certification from the Oversight Board that such reprogramming will not be significantly inconsistent with the Fiscal Plan and Budgets as required by PROMESA Section 204(c),” the board’s release reads.
“The Government cannot use Joint Resolutions to spend outside a budget that is compliant with the Fiscal Plan,” Carrión reiterated, adding, “Puerto Rico cannot fall back into an era of uncontrolled spending. This led us into bankruptcy and resulted in pain and suffering on our island,” and that only “fiscal responsibility will…ensure the people of Puerto Rico that their pensions are protected.”
In his statement, Sobrino added that the “actions of the Government of Puerto Rico during this administration have always sought to maintain fiscal responsibility while providing the resources needed to offer essential services to the citizens, which includes and requires overseeing the proper operation and finances of the municipalities.”